Illinois exempts nearly all retirement income from taxation, including Social Security retirement benefits, pension income and income from retirement savings accounts. However, the state has some of the highest property and sales taxes in the country.
This calculator reflects the changes under the 2018 Trump Tax Plan.
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Annual Social Security Income
Annual Retirement Account Income
Year of Birth
Annual Income from Private Pension
Annual Income from Public Pension
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|Social Security income is taxed.|
|Withdrawals from retirement accounts are taxed.|
|Wages are taxed at normal rates, and your marginal state tax rate is %.|
- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Illinois Retirement Taxes
Thinking about a retirement in the Land of Lincoln? Whether you’re settling down in Chicago, Cairo or Springfield, you’ll want to know about the taxes paid by Illinois retirees. The state exempts nearly all retirement income from taxation, but that doesn’t mean an Illinois retirement will be tax-free. The state has some of the highest property and sales taxes in the country. Below, we’ll dive into all the rules and rates to give you the full picture of retirement taxes in Illinois.
Is Illinois tax-friendly for retirees?
Most, but not all, retirees will find Illinois to be tax-friendly. The state has full deductions for Social Security, pension income and income from retirement savings accounts. In other words, retirees who are not working will not pay income taxes.
However, retirees in Illinois do pay other types of taxes, namely the state’s sales and property taxes. The average state local sales tax rate is 8.64%, while the average effective property tax rate is 2.32%. Illinois also has its own estate tax.
Is Social Security taxable in Illinois?
No. When filling out an Illinois income tax return, all Social Security income can be subtracted from total income. It is not taxed.
Are other forms of retirement income taxable in Illinois?
No. Just as Social Security income can be subtracted from total income, so too can other forms of retirement income. Subtractions are allowed for all income from pensions, whether public or private, and income from retirement savings accounts. So, for example, if you withdraw $20,000 from an IRA over the course of a year, that money is not taxed.
How high are property taxes in Illinois?
Very high. The average effective property tax rate in Illinois is 2.32%, the second highest rate of any state. That means a homeowner in Illinois can expect to pay about $2,320 in annual property taxes per $100,000 in home value. That will, of course, vary by location but seniors who intend to buy property in Illinois for their retirement should plan on paying significant taxes on that property.
What is the Illinois homestead exemption?
The Illinois general homestead exemption is available to homeowners who live in their home as their primary residence. The exemption is equal to the difference between the property’s current equalized assessed value (EAV) and the EAV in 1977, up to a maximum of $6,000. In Cook County the maximum is $7,000. This can lead to savings of around $500 to $1,000, depending on the tax rate where you live.
Persons 65 years of age and older can also claim the senior citizen homestead exemption. This is equal to $5,000 off the EAV. It is available to homeowners with a total household income of less than $65,000 in the 2018 tax year.
How high are sales taxes in Illinois?
Very high. The state rate in Illinois is 6.25%. Additionally, counties and cities collect their own taxes, averaging over 2.3% across the entire state. The total rate, taking the state and the average local rates into account, is 8.64%. This is the seventh highest in the U.S.
Additionally, both food and medicine are taxed in Illinois, albeit at lower rates than the above. The statewide rate on these items is 1%, in addition to local rates as high as 1.25%. So seniors can expect to spend up to 2.25% on taxes at the grocery store and the pharmacy.
What other Illinois taxes should I be concerned about?
The Illinois estate tax. The estate tax exemption in Illinois is $4 million, lower than the federal exemption. That means estates that do not owe federal estate tax may still owe Illinois estate tax, at rates as high as 16%. It’s a good idea to keep this in mind if you plan on leaving behind an inheritance for your loved ones.
Most Tax Friendly Places for Retirees
2019 SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.
Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from retirement savings like a 401(k) or IRA.
To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.
We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.
In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.
For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.
For each city we determined whether or not Social Security income was taxable.
Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.
Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2017 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration